The costly truth about “no-medical” life insurance

Published by The William Douglas Group Inc. on Oct 15, 2013

If you are old enough to remember when the Toronto Maple Leafs last won the Stanley Cup, you are a target for the “no medical exam” life insurance offered by about a dozen life insurance companies. Also known as guaranteed issue plans — meaning you can’t be refused coverage — these are offered primarily by direct mail and through incessant advertising on radio and television. They are also offered through insurance agents.

The general pitch is that you can get a limited amount of coverage — say, to cover funeral expenses — without a medical examination. The amount of coverage available depends on your age, but if you are in your early 60s you should be able to get up to $25,000 depending on the insurance company. You’ll only be asked your age, gender and whether or not you are a smoker.

These guaranteed issue policies are a good deal if you spend much of your time in physicians’ waiting rooms, take so many pills that you have to have your pharmacist put them in bubble packs so you can keep track of whether you’ve taken them, and have a relatively short life expectancy. For everyone else, there are less expensive alternatives.

Furthermore, your beneficiaries should not expect a huge payout from these policies if you apply for one on your death bed. If you die within two years of taking out the insurance policy, your beneficiaries won’t get the amount you applied for. Rather, your death benefit will be limited to a refund of the premiums you paid, perhaps with some interest, depending on the specific policy. The insurance companies assume that people buying these policies may have serious health issues. The insurance companies protect themselves by paying the full benefit only after they have received a minimum of two years of premiums.

No-medical life insurance coverage tends to be very expensive relative to policies that require a bit more medical information. I obtained some quotes for a $25,000 guaranteed issue policy for a 65-year-old non-smoking woman. The monthly premiums ranged from $151 to $162. Another company limited its coverage to $22,800 for such a person and charged a monthly premium of $120.

In contrast, a 65-year-old female non-smoker who an insurance company would consider — based on a questionnaire — in average health as opposed to excellent health would expect to pay about $73 a month for that $25,000 coverage.

Many companies offer as an alternative what are called simplified issue policies, and if you have only a few ailments you are much better off applying for one of these and completing a medical questionnaire. Even if you think you can only get coverage using a policy that asks no medical questions, it only takes a minute or two to look at this option.

My suggestion is to get the applications from a number of companies online, determine which ones ask the right questions for your unique circumstances, and compare the costs. You can do this anonymously.

Or course any life insurance agent can do this for you. Just make sure the one you choose is experienced and can deal with all the major companies.

The types of questions asked vary from company to company, but typically the application will focus on health issues. One company for instance won’t sell you this type of policy if you have a serious illness, which can include heart disease, cirrhosis of the liver, any type of cancer or dementia, among others.

Another company won’t accept applications if you are over 60. It also doesn’t want you if in the past two years you were off work for more than 15 consecutive days because of illness or if you were incarcerated in a penitentiary for more than 48 hours in the past five years.

My advice is if you have health issues and need substantial coverage for estate planning purposes or business needs, you should definitely deal with an experienced insurance agent.

An agent can do things that you can’t do on your own. For example, after collecting in detail all the information pertaining to your health that an insurance company will require, the agent would contact the underwriting departments of several insurance companies without disclosing your name. He or she would determine what coverage would be available and at what expected cost if an application were submitted.

It’s best to go this route because if you submitted an application on your own and were turned down by that insurer, you would almost certainly have to disclose this refusal on any subsequent applications you might make to other companies. This would be a red flag and could lead to other companies declining to give you coverage.

Assuming you decide to proceed and the agent submits your application to the company with the best potential fit, you will almost certainly be required to have a medical exam. This is no big deal. A nurse employed by the insurance company will come to your home or office, take your medical history, check your weight and height, take your blood pressure and obtain a blood and urine sample. The insurer may require an ECG as well if you’re applying for $1 million coverage or more.

The insurance company underwriter will obtain additional information about your health by obtaining what are called attending physicians statements from your doctors.

Regardless of what those TV commercials imply, getting an insurance medical is no big deal. The best case scenario is you will be eligible for life insurance coverage that reflects your needs at a price that reflects your health and which is generally priced lower than something without a medical. The worst case scenario is that you are refused coverage, in which case you’ll still be eligible for a guaranteed issue policy.

Stocks, bonds and mutual funds are offered through Manulife Securities Incorporated. Insurance products and services are offered through The William Douglas Group Inc. Banking products and services are offered through referral.